Author Topic: Buy raw land or hoard cash?  (Read 12913 times)

Offline RationalHusker

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Buy raw land or hoard cash?
« on: July 08, 2011, 02:16:22 PM »
I'm really struggling with this one.  I have a pretty good income level, have an advanced degree in engineering, and have a fair amount of equity in our current home, despite the poor housing market.  We are saving roughly $800 a month beyond automatic deductions from my paycheck for retirement.  Some of the $800 goes into Roths, some cash, and the rest I'll occasionally use to make precious metals purchases or "prepping" purchases above and beyond my prepping budget.  I'm probably a little light in cash, because I see inflation as the biggest threat long term (despite risks of short-term asset deflation, i.e., stock/housing crash, etc.).

My question is this:  Should I buy a piece of raw land that would eventually become a homestead, or should I hoard up as much cash as possible?  The bank has pre-approved me for a purchase far beyond what I'm comfortable with, and far beyond the asking price of a specific property I'm considering.  I hate to give up liquidity, but I'd also hate to miss the chance to buy affordable, wooded land that's hard to come by in my area at a low interest rate.  We could make the payments and still have a little left over for savings every month, but we'd have much less margin for error than we do now. 

I'm open to any advice/thoughts on this issue.  I'd start a bunch of fruit and nut trees on the land right away, forage for morrels, fish (there's a stream), and hunt (it's flush with deer, turkey, rabbits, squirrel, etc.).  So there would be some return on investment right away, it's not like it's tillable acres that would command rental income or any tangible income. 

I'm struggling because of the unpredictable nature of this inflation-deflation tug-of-war.  If I could predict that, I'd be set for life and wouldn't have to struggle with this decision.

Thoughts?  One last consideration:  we're trying to sell our current home, which would provide ample down-payment to make monthly payments on the raw land much more comfortable.  We'd rent for a year or two while we built a modest/affordable home on the property.  We could do an offer contingent upon sale, but right now it appears as though we won't be able to unload our home very quickly.



Offline maustypsu

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Re: Buy raw land or hoard cash?
« Reply #1 on: July 10, 2011, 03:26:23 PM »
I struggle with the inflation-deflation thing myself when you view it as major asset price deflation.  No, I'm not worried about the price of corn going down but land could.  I think you have to ask yourself is the land in that area in a bubble.  Assuming it isn't in the new 'cool' section of town then while it may still come down in price in the future, it is more likely that the price decreases will be offset by interest rate increases.

I like the idea of planting some fruit trees and maybe even doing some clearing and tilling/fertilizing of the land before you move.  I've been messing with the idea of setting up an aquaponics system using the stream at my BOL.  The running water replacing a 'pump'.  So if your plan was to work on these types of projects then I would consider the interest you are paying between now and the time you move as an expense that is valid as an investment.  But just be sure you aren't doing the same thing I would in your situation and trying to justify the hunting and fishing as an expense offset since there are probably other places you could do that without buying this.   ;)

You mention inflation as your number one concern.  So buying land before it inflates (may not happen in the round of inflation I'm predicting) or before interest rates go up seems like what you are working toward.  However, if you could put your money into gold and silver now they will go up with inflation and may offset the inflation of the land - giving you the same long term price out of pocket.  The flip side is that inflation's effect on land prices actually makes them fall since interest rates go up and people can afford to borrow less to buy land and it becomes a luxury.  This is what I see happening.  Buying gold and silver, having them inflate in price while the land comes down in price could be a double victory. 

Offline GreyWolf

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Re: Buy raw land or hoard cash?
« Reply #2 on: July 10, 2011, 04:02:01 PM »
Buy land,silver,gold in that order.All will reward you in the end. Why hoard something that is losing it's value daily?

OldManSchmidt

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Re: Buy raw land or hoard cash?
« Reply #3 on: July 10, 2011, 10:38:17 PM »
Consider this, you can't build shelter on cash.  You can't grow food on a dollar bill.  You can butcher a dollar, but it doesn't taste very good.

If it were me (oh how I wish it were me), I would buy the land.  I would advise putting as much down on it as you can possibly manage and then find a little more to put down.  Buy it outright if you can, but it doesn't sound as if you can do so.

Even bare ground is useful.  If nothing else, you can go there for a weekend getaway camping trip.  You could do that weekly if it is close enough.  Be a good time to tend the garden while you are there.  Maybe build a little, unobtrusive and secluded trapper's cabin back in the trees while you are at it so future "camping trips" would be more comfortable.  Perhaps plant a little corn in a clearing with a good view from the cabin so as to draw some of the larger herbivores in to have lunch just before they become your lunch.

Offline Jared Plumlee

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Re: Buy raw land or hoard cash?
« Reply #4 on: July 10, 2011, 11:13:39 PM »
If possible do both, cash as worthless as it may become at some point still has value and is "king" as they say.  Buying land is also a very good place to store wealth. So why not both? How you choose to divide it out is up to you, meaning what percentage of cash you hoard and what percentage you invest in the property. But you said you were cash short. So id probably try to store up enough cash to cover me for 3 months minimum in case my job disappeared first and foremost, then i would see whats left in the budget for land. But thats just me every situation is different.

Offline Taylor3006

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Re: Buy raw land or hoard cash?
« Reply #5 on: July 10, 2011, 11:58:20 PM »
First off I want to say I have land, cash, and metals all have their advantages and disadvantages, hence the diversification. I agree with you about liquidity, its always a tuff call. I suppose since you are working and planning to sell your home, my only question to you is about the location of the raw land. Is it close enough for you to live there and commute to work? Planning on the SHTF is one thing but until then you still have to live and work as well as collect them "worthless" dollars and use them to pay your creditors and other bills. Sure you can't eat money but it dosen't take a rocket scientist to trade them in for a hamburger either. If the land is within a reasonable commute distance to your work, I would buy it, put a cheapo trailer out on it to live in till I built something, sell the house, use those proceeds to provide improvements on the property and pay down the note with. Don't try and do all the projects at once or you will feel overwhelmed, focus on one thing at a time and pay as you go. Keep putting away as much cash as you can, even if it is a small amount to rebuild your reserves. If you plan on building a nice place, try to locate the trailer up near the road and fence off a nice yard. When your house is built, use it as a rental property for someone you can count on if/when TSHTF or to bring in friends and family in that event so you won't have everyone under one roof. I agree with you about planting fruit and nut trees as soon as you can to get them established. Great idea and one most don't think to do.

endurance

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Re: Buy raw land or hoard cash?
« Reply #6 on: July 11, 2011, 08:02:02 AM »
I guess I'd be concerned if you were going into debt on another piece of land vs. paying cash.  If you were to lose your job, if you're concerned about servicing one mortage, why is two better?  I'd focus on having one piece of property that was paid for, whether it's buying that new piece or focusing on your existing property.  Inflation is still under control now, even if it's 5%, it's not like a loaf of bread is doubling in price every month.  So holding some cash is still wise.  If you continue to save until you can afford to pay cash for land, you give yourself options.  If you have two debts and no income or savings, you don't have options.

Offline RationalHusker

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Re: Buy raw land or hoard cash?
« Reply #7 on: July 11, 2011, 11:57:52 AM »
Thanks for all the good feedback and thoughts.  It's comforting to know that I'm not the only one having a hard time balancing (and/or knowing) the risks of deflation vs. inflation.  In the end, I'm a big believer in inflation.  But in the short or even intermediate term, I would not be at all surprised to see serious asset deflation and a period where having liquidity (e.g., cash) is critical. 

We decided to write up an offer, but it is contingent upon the sale/closing of our current home.  As much as I wanted to, I just couldn't sleep well with the thought of increasing our debt levels, even though we should be able to afford it (assuming the economy doesn't completely cliff-dive in the next year or two).  My job is in high demand and provides pretty good income. 

It's just frustrating because I really want to do some things to prepare for what's to come that this property would allow that my current home does not (larger scale food production, energy independence, etc.)  It's tough to invest in a home you know you don't want to be in.  If our house doesn't sell our offer to buy the raw land "dissolves."  In the mean time there are plenty of "portable" preps I can continue to work on like food storage, increasing my cash liquidity to better protect against deflation, and developing DIY skills.  If the house doesn't sell, at some point I'll have to resign to making some additional investments in it (i.e., more garden space, energy efficiency improvements, and some cosmetics to improve resale value/marketability). 

If there's interest, I'll let you know how this turns out.  Haven't heard from the seller on our contingent upon sale offer, yet. 

endurance

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Re: Buy raw land or hoard cash?
« Reply #8 on: July 11, 2011, 01:19:22 PM »
Definitely keep us appraised of what's going on. 

I had a similar situation and initially thought I would have to rent my place when we bought out new 'stead.  In the end, I didn't even have to list the property to find a buyer and everything worked out perfectly.  I'm also 100% happier with the new 'stead, where I can invest every evening and weekend into upgrading the home and improve the land knowing that I'll be the one who benefits for the next 40+ years and resale/return on investment is unimportant to me. 

We are still straddling the wife's old house, but we have a great renter with a two year lease with an option to buy that's making things a lot easier. 

Life rarely gives you clear choices; it's more grey than black and white.  Sounds like you have a passion for this land and if it works out, that's a hell of a place to start.  Like I said, I spend four evenings a week until dark and most of my weekend time putting in new beds, working on water capture and distribution, installing shelving, upgrading plumbing, putting in fencing, and other projects, yet somehow none of it seems like work to me.  It's all kinda like this dream coming together.

If/once you get it, make sure you photograph the heck out of the place.  Every nook and cranny.  It's incredibly rewarding now to look at our before and after pictures now as we convert a 90 year old home and unproductive land into our own garden of eden.

A little under three months from this:


to this:



Now imagine what it'll be like in five years?  Or 20?  Now that's a return on investment.

Offline RationalHusker

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Re: Buy raw land or hoard cash?
« Reply #9 on: July 11, 2011, 02:25:20 PM »
Thanks, endurance.  Looks good, and I'm sure its gratifying.  I'm jealous.  The property I'm pursuing has tremendous potential.  It doesn't meet all of my "wants," but nothing in my budget would.  But there's plenty of room for a several smaller fruit trees and a hazelnut/filbert hedge along two sides of the property, in addition to the 14 acres of cottonwoods, maples, ash, hickory, walnut, locust, and mulberry trees.  There are also a lot of wild blackberry bushes that I'm sure could be much more productive with a bit of management.  The land is ripe with whitetail deer and turkey, not to mention squirrel and rabbit.  And it's bordered by a stream on two sides.  So many things I could do.  And the location is nearly ideal - and secluded, yet under a half-hour drive from two areas with my current (and other potential) employers. 

If I didn't know what I do about the economy and the manipulation keeping it bobbing along, I'd go for it.  But I'd never forgive myself for getting unnecessarily strapped with the prospect of double-digit interest rates by the time we'd be ready to build on this site.  If we can just sell our home we could buy the raw land, rent for a few years, and get the land competely paid off by the time we'd be ready to build.  If rates got out of control, we'd just rent nearby and put up some kind of cheap shelter.

Anyway, if this works out it was meant to be.  If it doesn't, then hopefully we'll be in a better position in the future.

endurance

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Re: Buy raw land or hoard cash?
« Reply #10 on: July 11, 2011, 02:36:46 PM »
Sounds like great property to just chip away at and improve a small patch at a time.  As trees die or become sick you can carefully select the replacement trees to better meet your future needs. 

Mine is all ponderosa forest, so my 20 year plan is to remove 2-3 trees a year and replace them with more fire resistant, productive trees and shrubs.  This year was just the tip of the iceberg in one area I can easily protect from the deer, elk and bunnies.

It's incredibly rewarding and you've got exactly the right attitude.  If it works out, you have a great opportunity to create something amazing.  If it doesn't, you can just keep looking for that next, right something.

We had six offers in and went under contract twice before we got this place.  It was a 2.5 year search, but with time, you just learn that sometimes it's not meant to be.  On one of the places our inspection revealed very serious concerns about the electrical system so despite spending money to make the foreclosure property mortgagable, we walked away.  In hindsight, it was one of the best things that's ever happened.  Since that time we learned the neighbors were not our type at all and we would have been miserable there. 

Offline Roundabouts

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Re: Buy raw land or hoard cash?
« Reply #11 on: September 29, 2011, 09:16:45 AM »
Would like to know how this turned out for you.  Just some food for thought.  If you are going to make a purchase set the monthly payment you would be making if any aside and start living as if you already have the payment.  Make sure you maintain a 6mo or better cash reserve. Just the basics I am sure you have already thought about.  One thing that we thought about doing is refinancing our current home with cash out.  Use that cash to buy a new place free and clear.  That way if SHTF for you at least you would hold the deed to something bought and paid for.  In our situation if the dream property popped up that is one thing that we could do.  Also if it was the perfect place for us we wouldn't think twice about cashing in our 401k for it.   

To sell your current house if your local market is flooded with homes for sale staging can be invaluable.  Yes some say it can cost to much but if your house sells fast that is money in your pocket now plus you are free to go off and live your dreams.   (I staged my sons place and it sold in 2 weeks with 6 other places exactly the same on his street they were priced lower.  The other places took months to sell well those that did.  The $3000 spent was well worth it.  Part of the tipping point was he bought a brand new flat screen TV had it wall mounted and then paid for 1 year of cable TV with movie package plus internet.  People loved it.  He also had gift certificates for movers discounts for gutter cleaners window washers carpet cleaners  3 free pizzas and a appliance warranty for 1 year. I also had him make up pretty gift baskets with big bows for the kitchen laundry and bathrooms.  Simple stuff soaps toilet tissue trash bags cleaners fabric softeners light bulbs candles wine glasses with sparkling cider and such. Each basket was put in the corresponding room. Almost forgot in the garage was a basket with a push broom flashlight batteries wd40 screw driver hammer car wash stuff  bag of briquets and lighter fluid.  Don't know if the people really bought the house because of the house or all the gifts that came with it  ;) )  Thought I would add that since selling your house may help you get to your dream faster.

 

Offline bigbear

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Re: Buy raw land or hoard cash?
« Reply #12 on: September 29, 2011, 11:34:34 AM »
Part of the tipping point was he bought a brand new flat screen TV had it wall mounted and then paid for 1 year of cable TV with movie package plus internet.  People loved it.  He also had gift certificates for movers discounts for gutter cleaners window washers carpet cleaners  3 free pizzas and a appliance warranty for 1 year. I also had him make up pretty gift baskets with big bows for the kitchen laundry and bathrooms.  Simple stuff soaps toilet tissue trash bags cleaners fabric softeners light bulbs candles wine glasses with sparkling cider and such. Each basket was put in the corresponding room. Almost forgot in the garage was a basket with a push broom flashlight batteries wd40 screw driver hammer car wash stuff  bag of briquets and lighter fluid.   

Some pretty neat ideas!  I've got my house on the market and will steal an idea or 2!  Did you have the gift baskets there for walk-thrus with a note saying a gift for the buyer?  How did he advertise the movie package and other gift certificates?  A folder with a few handouts?

Offline Roundabouts

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Re: Buy raw land or hoard cash?
« Reply #13 on: September 29, 2011, 02:01:37 PM »
We just had the gift baskets sitting in the corresponding room like on top of the washer dryer back of the toilet next to the stove and so on.  We had printed a note card can't remember what they said for sure Gift with purchase Welcome Home gift basket each one said something different. 

Advertised with the listing Free Flat Screen TV with 1 FULL YEAR FREE SUPREME CABLE WITH ……(listed all the movie channels)  Also listed the home warranty.  And Home Maintenance program free for first year gutters windows carpet cleaning and so on.  Worry free moving no hassle move with abc Movers plus free pizza delivered so you don't even have to cook.  Well you get the idea.  Folder and hand outs work too.  Those are the ideas we came up with for his area.  Had it been in my area we might have said GIFT CHICKENS to provide you with FREE eggs for life or something like that.

 Just got to get creative.    Of course we painted and cleaned and use his furniture to stage and make it look like a show room.  Then out side spread bark dust and pressure washed the driveway and sidewalk in front of his house.  We even did the street itself in front of his house.  Living in a staged house may seem possible but it really can suck.  Because what is great to the eye is not always the most functional.  I also had him unload his cupboard and just have minimal stuff in there same with closets. (He HATED the fact that I made him get hangers that were all the same color and coordinate  his clothes by color and short or long sleeve.  But when people looked in his closets they couldn't believe how big they were.  Optical illusion  ;)

 And of course he always had home made fresh bread sitting on the counter with some cheese we figured cookies are over done.  In a pinch for a fast scent you can put vanilla in a fry pan and heat it up for a few min. (don't burn it) The smell of vanilla is said to make people want to spend more freely.  I brought over some legos and crayons with a color book so children that were with their parents could be entertained giving the parents more time to look around.  If you have a little area set up in one of the bed rooms or kitchen table (homework area)  and the parents see how their kid is having fun and so happy in their "new room/home" It's all about the possibilities of creating happy memories.  Right down to dad being able to see himself grilling in the back yard.

The thing to remember is people buy with emotions so send emotionally charged messages that say this is a happy safe loving home.  The sellers emotions are often I can't wait to get the heck out of here.  So you have to curb that and be very welcoming to the new people. Hope this helps.

Offline Bradbn4

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Re: Buy raw land or hoard cash?
« Reply #14 on: September 29, 2011, 02:18:56 PM »
It is a real hard question, and if I could find the right land I would cash out some secondary savings and buy the land.  Invest in the land to setup long term (trees, garden prep) usage so when you are ready to use the land it would be ready for you.

It looks like endurance made is own good luck by spending years hunting for the right spot.  My options will open up a bit once this house is paid for.  The only land I have been able to find at a "good" price has been barren spot with zero vegetation, no power, no water.   When I have looked in some what wetter area the prices were just a bit over the top -  :o  ok, worse that a bit - more like 10x the total price I am willing to spend for less than 1/5th the land I would want to have.

Offline RationalHusker

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Re: Buy raw land or hoard cash?
« Reply #15 on: September 29, 2011, 03:58:13 PM »
It is a real hard question, and if I could find the right land I would cash out some secondary savings and buy the land.  Invest in the land to setup long term (trees, garden prep) usage so when you are ready to use the land it would be ready for you.

It looks like endurance made is own good luck by spending years hunting for the right spot.  My options will open up a bit once this house is paid for.  The only land I have been able to find at a "good" price has been barren spot with zero vegetation, no power, no water.   When I have looked in some what wetter area the prices were just a bit over the top -  :o  ok, worse that a bit - more like 10x the total price I am willing to spend for less than 1/5th the land I would want to have.

Very ironic timing on your response.  I've had my eyes on a some undeveloped wooded property for about 6 months.  It was sold once or twice but the previous buyers' contracts fell apart due to buyers failing to obtain financing.  We are pre-approved and in good financial shape.  I put in an offer contingent upon sale of our current home about 2 months ago.  We had a "dud" of an agent and didn't get a lot of traffic.  Long story short, we removed the contingency and executed an outright purchase offer when the sellers obtained another offer (we had first right of refusal).  So we've upped our sense of urgency on the sale of our existing home, but we can easily afford both payments provided I don't loose my job, which is relatively stable (I'm an engineer with a fairly hard to come buy skill set).  It was a bit of a gamble, but in my mind there were risks on either side.  We won't close for 30 days or so, but once we do we'll begin developing a food forest and some hugelkulture beds.  On my last trip through the property I kicked up a whitetail deer with evidence of lots more all around.  There are lots of mulberries, blackberries, and walnut trees already growing on the property, not to mention loads of ash, cottonwood, and locust, and silver maples.  Good sized stream running through it.  Most of the 16 acres is wooded floodplain, with about 1.5 acres "high, dry, and buildable."  Lots of morrels growing naturally as well.  Flooding of the 1.5 acres, which is already cleared, is not a risk (this is my line of work, so I'm confident of that). 

I want to add additional berry shrubs in some of the more open canopy areas.  I also want to get a hazelnut "hedgeline" along the north edge of the buildable area.  Also hope to quickly determine a few good locations to get some Jerusalem artichoke and ground nut going.  Protecting all these from deer and other wildlife will be a challenge, especially since for a year or so we won't be living on site.  If we didn't have kids we'd build an outbuilding with some makeshift housing in it or pull an RV on site while we build the home.  With the kiddie-clan (3 boys under 5) that isn't feasible, unfortunately. 

We are very fiscally conservative with our finances, so even temporarily taking on this extra debt was a difficult thing to do.  Hopefully it doesn't bite us in the butt.  But we've just signed with a very good realtor who has recently sold homes in our area.  We hope to sell fairly quickly now and rent for a year or so before and during construction of a very modest but efficient home on the property.  It's a little stressful, but I just decided it was time to act and take control vs. sit back and wait until I could pay cash for a less desirable property.  Wish me luck.  I'm hoping to start a blog specifically to document/track our progress, which I'm sure will be painfully slow.

Offline Bradbn4

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Re: Buy raw land or hoard cash?
« Reply #16 on: September 29, 2011, 05:50:58 PM »
RationalHusker:

Sounds like a good find - I have been some places that 2 acre spot would work quite well, other places that 200 acres spot would make you feel like a bug crawling on a sheet of paper.  A 200 acre plot of land is quite big, while you have real space, but the visual isolation is not that much out east of here. 

The only good use of cotton wood trees in part of a hugelkultur bed.  They are one of the "dirtiest" trees I have ever had the misfortune to have next to my house.    Right now I can go for a walk and often kick up some mule deer - as many as 11 during my evening walks.  However; this part of town I live in is next to some old horse pico ratchets.  Some nice wilderness, you don't feel over crowded.   A good spot for in the city - a very good spot. 


I wish you the best of luck on the land - may you find it to be everything and more (better) than you could have expected.   Maybe with a week of work of a good bulldozer you can make another "high and dry" spot to put a secondary garden / work area on your land if you feel the need. 



Offline RationalHusker

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Re: Buy raw land or hoard cash? (Updated)
« Reply #17 on: October 26, 2011, 01:59:31 PM »
We pulled the trigger...several triggers, actually.

(1)  We bought about 15 acres of wooded land with a 1-2 acre clearing for buildings, gardening, fruit trees, etc. 
(2)  We liquidated some (about 20%) of some IRA investments I didn't like, paid the tax and penalty.  Both investments showed losses on paper so I'm hoping a good tax advisor can minimize that further.  Used that cash for down payment on wooded land.
(3)  Just accepted an offer to purchase on our existing home.
(4)  We're now looking for cheap rentals near the raw woodland until we figure out how/what/when we're going to build a home on the raw land.  This will allow us to spend more time at the property for tree planting, gardening, and recreating.

I'm a little overwhelmed and breathless.  Lots of major decisions in a few short months.  Knock on wood, it seems to be playing out perfectly.  I really didn't want to buy the land before our home was sold, but the seller got another offer in writing and we had to pull the trigger or pass it up.  If you can believe it, we closed on the raw land on a Friday and received an offer letter on our current home the following Monday.  I should buy a lotto ticket.  We could afford both payments, but I really didn't want that kind of debt over our heads.

Next step:  Figuring out what to do as far as moving to the raw land ASAP.  Trailer house parked near a storm shelter/root cellar?  Metal storage shed with living quarters that could convert to just storage upon completion of a more traditional home?  Any ideas?  I'd be all for a cheap RV but we have little ones to think about. 

Anyway, just thought I'd give an update.  I feel really good about the new found liquidity, even though we're walking away from that house with less in pocket than we put down.  Oh well, at least we won't have to cut a check at closing. 

Hope everyone else's preps are going well.  I've been so busy I felt like my preps were slipping, but the last week has knocked off several huge, huge tasks.  Bought land, reduced debt, and hopefully will find a cheap rental to reduce living expenses.  This of course assumes there are no snags in the home inspection and closing process.


endurance

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Re: Buy raw land or hoard cash?
« Reply #18 on: October 26, 2011, 02:36:30 PM »
Wow, thanks for the update.  It does sound like all the cogs are clicking into place.

It's hard saying what's the best option for temporary housing, but you have some good ideas in mind.  I've lived in a 21' travel trailer and while it was ok to have occasional guests, it really was too close for comfort for most families for any kind of extended time.  A mobile home on the site for a year or so sounds like a good option.  Maybe you could pour the foundation with one fully enclosed room (four sides and a roof) for a storm shelter, both before and after the home is completed.  I saw one home with this design and they had a vault door put on it.  Made a 200+ square foot gun safe/safe room (although they stored their thousand dollar a bottle wines in it).

Congrats.  I hope the closings go smoothly.

Offline LdMorgan

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Re: Buy raw land or hoard cash?
« Reply #19 on: October 26, 2011, 11:59:21 PM »
I'm going to risk The Wrath of All here, and suggest that you do something decidedly nonconformist.

Buy the land (but don't pay for it!) and also spend all your money, too.

Sorta.

Buy the land for the lowest possible down payment, at the lowest possible interest rate, and opt for a zero-principle minimum monthly payment.

Yeah: Go into debt in these hard times, and pay interest on your debt forever.

On the surface, it sounds idiotic.

But look at the NUMBERS a little more closely...

(Well--we don't have any numbers here, so I'll just have to make some up.)

Let's say you're looking at ten acres for $2,000.00 an acre. (Not too farfetched--I can buy land in central Florida for that. Or less)

So the land costs $20,000.00, and let's say you can put $1,000.00 down, and the interest rate is 4.25%. Let's make it a 30-year mortgage.

Normally, paying off both the interest and the principle over 30 years you'd be paying $93.47 a month.

Paying off just the interest (4.25% of $19,000.000) you'd be paying $67.29 a month. And at the end of 30 years, you'd have to pay a $19,000.00 balloon payment, or lose the land.

$67.29 looks like a good deal to me!

Look at it this way: You'd be paying $67.29 a month to "rent" ten acres of land, and your landlord could neither kick you off it, nor raise your rent for 30 years.

And now you also have some strategic options you didn't have before:

1) Just before that that 30 years ran out, you could sell that land for whatever it's 30-year appreciated value, and come out way ahead. How much ahead? Don't know--But I bet it would be a lot more than the $19,000.00 balloon payment you'd fork over at the closing to clear the title.

2) During your thirty years, you could rent out some of your ten acres--let's say half of it--for AT LEAST a hundred dollars a month--with that price steadily rising over thirty years as the land appreciates and the dollar devalues.

If you're making $100.00 a month pasturing someone's livestock, you're already making more from just half the land than all of it is costing you. That half of your land could pay for all of it.

3) You can also farm something on that land (whatever part you haven't rented) and have even more money coming in that way, too. What is the profit in six beehives over thirty years, for example? 

One hive can produce 150lbs of honey per year. Times 6 is 900 lbs per year. Times 30 is 27,000 lbs of honey. At the present rate of $5.23/lb, that's $141,210.00 worth of honey over 30 years without even considering the rising price of honey over that 30 years.

Just a few beehives can make that $19,000.00 balloon payment look like VERY small change.

But it gets better!

ALL that interest you're paying comes right off your taxes. You're really renting the land for free. (Or near enough as makes no never mind.)

Whatever principle you pay would not come off your taxes.

So don't pay that extra $26.18 a month in principle. And don't hoard it in some bank account that pays 1% interest or less, either.

Spend it on six beehives. Or anything else that will make more than $19,000.00 over a thirty-year period of time.

Maybe buy some silver with it. Let the silver appreciate over that 30-year period. It will amount to a LOT more than $19,000.00 whether the present "silver bubble" busts or doesn't. Or even if it bubbles up and busts a couple of times in the interim.

In the end, that $19,000.00 balloon payment will be small change indeed when the time comes to pay it.

Hoard only enough of your cash for normal daily liquidity and reasonable emergencies. Put the rest to work just like that $26.18.

Time is on your side.








Offline chris

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Re: Buy raw land or hoard cash?
« Reply #20 on: October 27, 2011, 12:18:17 AM »
I'm going to risk The Wrath of All here, and suggest that you do something decidedly nonconformist.


The craziest, and most logical, plan yet. I couldn't do it, but I LIKE it!

endurance

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Re: Buy raw land or hoard cash?
« Reply #21 on: October 27, 2011, 08:40:38 AM »
So the land costs $20,000.00, and let's say you can put $1,000.00 down, and the interest rate is 4.25%. Let's make it a 30-year mortgage.

Normally, paying off both the interest and the principle over 30 years you'd be paying $93.47 a month.

Paying off just the interest (4.25% of $19,000.000) you'd be paying $67.29 a month. And at the end of 30 years, you'd have to pay a $19,000.00 balloon payment, or lose the land.

$67.29 looks like a good deal to me!
Several problems with this.  First, most banks won't finance raw land without 40-50% down.  I've never heard of any bank financing land with 5% down.  Some FHA loans on will let you buy with 3.5% down, but only for complete houses that meat their criteria, never for raw land.

Unless you know about some bank making loans that are very non-conforming, I don't see this as a viable option.

Besides, if you read the OPs last post, you'd notice he already bought the land.  ;)

Offline slingblade

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Re: Buy raw land or hoard cash?
« Reply #22 on: October 27, 2011, 11:02:52 AM »

Next step:  Figuring out what to do as far as moving to the raw land ASAP.  Trailer house parked near a storm shelter/root cellar?  Metal storage shed with living quarters that could convert to just storage upon completion of a more traditional home?  Any ideas?  I'd be all for a cheap RV but we have little ones to think about. 


Earth berm dome!  That's what I'm looking at. 

Offline PrepperJim

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Re: Buy raw land or hoard cash?
« Reply #23 on: October 27, 2011, 11:44:51 AM »
I have just reading Fernando "Ferfal" Aguirre's book Surviving the Economic Collapse. He has a unique perspective having survived Argentina's collapse from Dec, 2001 to the present.

While land may look good, I would hoard cash and precious metals first. You will need a lot of it just to buy the things necessary to survive.  Of course, if I had the opportunity to move to a smaller community instead of Houston, I probably would, but my main concern is having enough cash on hand, in the bank and available to survive a job loss and currency collappse at the same time. I wish I had more time to prepare, but I guess we never pick the time of a collapse.

Offline RationalHusker

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Re: Buy raw land or hoard cash?
« Reply #24 on: October 30, 2011, 05:59:47 PM »
I have just reading Fernando "Ferfal" Aguirre's book Surviving the Economic Collapse. He has a unique perspective having survived Argentina's collapse from Dec, 2001 to the present.

While land may look good, I would hoard cash and precious metals first. You will need a lot of it just to buy the things necessary to survive.  Of course, if I had the opportunity to move to a smaller community instead of Houston, I probably would, but my main concern is having enough cash on hand, in the bank and available to survive a job loss and currency collappse at the same time. I wish I had more time to prepare, but I guess we never pick the time of a collapse.

Fortunately, if the sale of my house goes through w/o any unexpected deal breakers, we will have managed to do both.  I used to believe so strongly that inflation was the outcome, that I didn't hold much (i.e., enough "paper" cash).  Now I know you do need to hedge for inflation, but you also need liquidity and "dry powder" for the huge dips and volatility of PMs and other hard assets. 

Hopefully by the end of the year, we'll be out from under our mortgage, we'll have some liquidity, and we recently acquired land.  Next step???  How to reduce everyday cost of living, make this land produce for us, and keep increasing liquidity and hard assets.  I hope we have a bit more time before the breaking in the economy accelerates.